I believe that the power of using other people’s money is the key to success. Leverage happens when you earn money not only on your own money but on other peoples’ money. Sophisticated investors have long known this principle, and used it to make millions. Active, wealthy investors are allowed to borrow against their stock portfolio to invest in yet more stocks. If the market goes up, they win double. The average person isn’t allowed to leverage in this way. Or are they?
When you buy real estate, you can put as little as 3 percent of the purchase price of the home as a down payment. (Even 0 percent, if you are a veteran or buying in a rural area.) Only a small portion of the investment is actually your money. You have to pay rent on the rest of the money, in the form of interest, and you have to pay it back, but you are investing the lender’s money as if it were your own.
If you put 20 percent down on your home, and your mortgage company puts down 80 percent. As the home appreciates, 100 percent of the home appreciates – your 20 percent and the mortgage company’s 80 percent. But you own 100 percent of the appreciation.
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